2022 was a “tail of two halves” for the grocery-anchored retail sector, which started the 12 months with red-hot momentum from file transaction quantity in 2021 and the large cap-rate compression of low-cost debt.
A median month-to-month transaction velocity of $1.5B for grocery-anchored retail property in H1 2022 mirrored this Huge Mo.
Nevertheless, the observe file for H2 2022 mirrored the affect of the Fed’s marketing campaign to lift the price of debt: the month-to-month transaction exercise common was almost sliced in half, to $852M, as cap charges surged to present ranges of greater than 7%.
However, the nice half outweighed the dangerous half—grocery-anchored retail notched its second consecutive file 12 months in 2022 with $14.7B in whole transaction quantity, a rise of almost 16% over 2021, based on JLL’s just-released annual US Grocery Tracker Report.
After plunging from a pandemic-inflated 56% of US grocery gross sales in 2020 to 11.3% in 2021, the e-commerce share of grocery gross sales resumed its pre-pandemic trajectory in 2022 at 15.8%, about $161B. JLL is projecting that the e-commerce share of grocery gross sales will hover at round 15% by way of 2026.
Whereas establishing and increasing their very own proprietary on-line platforms, main grocery chains in 2022 additionally diminished their reliance on market corporations and e-commerce suppliers like Instacart, DoorDash and Uber Eats.
JLL’s report stated what seemed to be an rising subsector of the grocery retail market on the finish of final 12 months, startups like Gopuff, Buyk and Fridge No extra that promised 15-minute grocery deliveries from micro-warehouses—an idea that attracted vital enterprise capital final 12 months—seems to have fizzled, with Buyk submitting for Chapter 11 chapter.
When it comes to their retail footprints, H-E-B and Publix have been the quickest rising grocery chains in 2022, including 1.2M SF and 1.8M SF, respectively.
As a result of there was much less cushion between grocery-anchored asset pricing and rates of interest initially of the 12 months, the grocery-sector was the primary retail subtype to really feel the total affect of fee hikes, JLL stated.
“Over the course of 2022, going-in yields on multitenant grocery facilities expanded almost 100 foundation factors (bps) from a traditionally low common of 5.9 % in Q1. As compared, cap charges on non-grocery-anchored retail solely elevated by a median of 80 bps from peak pricing,” JLL’s report stated.
Noting that “not all grocery-anchored retail is created equal,” the Grocery Tracker report stated transaction yields different not solely by area—the Midwest noticed the very best returns—however by which grocery chain was anchoring the purchasing facilities: facilities anchored by Complete Meals shops had probably the most aggressive pricing, averaging a 4.9% cap fee, adopted by Sprouts and Publix, which traded about 80 bps wider on common.
Whereas non-public capital remained the biggest energetic participant within the grocery-anchored sector, a surge in massive portfolio transactions by institutional traders scale back non-public capital’s share of the offers to 55%, the bottom degree in 5 years, JLL stated.
Giant offers by institutional traders in 2022 included DRA Advisors’ acquisition of a 33-asset grocery portfolio from Cedar Realty Belief ($870 million), EDENS’ buy of the Donahue Schriber portfolio on the West Coast ($500 million, 9 property) and TA Realty’s acquisition of the Gravestar Northeast grocery portfolio ($390 million, eight property).
JLL is projecting that the typical deal dimension within the grocery-anchored sector will come down in 2023 as a result of problem of financing massive transactions within the present lending atmosphere.
